India on slippery ground over crude

NEW DELHI: India has landed itself in an Iranian pickle, largely of its own making.

It's long been known that India would find it unsustainable to remain in the Asian Clearing Union (ACU) for its oil payments to Iran.

Thanks to the US and EU sanctions, it was clear that Indian payments to Iran in either the dollar or the euro would stop sooner rather than later. Second, the ACU was a non-transparent way of payment, because since it was net payments by central banks, and there was no way in maintaining oversight on whom the payments were being made to, said Indian officials.

This meant that if it was found that Indian payments were going to Revolutionary Guard entities, which are under UN Security Council sanctions, India's compliance would take a beating. India would not risk that in an year when its entering the Council with hopes of a permanent berth.

But none of this was clarified to either the nation or, for that matter, to the Iranian's themselves. The government's cloak-and-dagger way of going about the entire issue, where the Reserve Bank of India even surprised the foreign office with its notification last week, left the government protesting weakly about its autonomous decision-making.

On Thursday, the MEA spokesperson said, "This is a technical issue and the Reserve Bank of India is seized of the matter. Efforts are being made to resolve the issue as soon as possible. There is no question of India acting under pressure of any country". It failed to convince anybody.

India might try to get an arrangement similar to the South Korean or Japanese, where their oil payments are made in won or yen and used by Iran to buy good from those countries. But India's exports to Iran are negligible, and as the price of oil climbs, the deficit is growing ever larger. There is talk that the payments could be made in dirhams or yen by India. Iran could shock India and ask for payments to be made in Chinese yuan.

But on the whole, the Indian system is less worried. Why? Because in many ways, it shows the slow but strategic shift of India's interests and stakes in the Middle East from Iran to the Arab countries.

After King Abdullah visited India in 2006, India has steadily moved its oil imports to make Saudi Arabia its largest oil source by 2010. Given a growing convergence with Saudi Arabia even on security issues, India is likely to find that both the Saudis and the UAE would be more than willing to make up the loss of oil imports from Iran. Thanks to WikiLeaks, it's now clear that the Arabs want Iran subdued almost as much as Israel and the US do.

But India has also shown a deplorable lack of finesse in managing its relations in the Middle East. China has shown itself to be a far smarter player. India cannot completely dump Iran, because on many issues, Iran is an important ally, particularly in Afghanistan. But as Iranian sources said India has not seriously engaged Iran on Afghanistan in the recent past, which key projects like Chahbahar gather dust. The relationship too has been under-invested, so this crisis, in many ways, was waiting to happen.

India is having to defend its decisions as not having been taken under US pressure, specially since the new US sanctions do not target oil sales by Iran. India's decision is being seen as being extra nice to the US. Of course there has been US pressure on India and it's been relatively relentless both in the Bush years and the Obama years. India could have anticipated this after the UN sanctions were passed in 2010, but by letting events overtake strategy, India is unlikely to make a diplomatic mark this time.

The Iranian ambassador Nabizadeh told journalists on Saturday that India has to buy Iranian crude, so India had better find a solution so maintain better relations with Iran. Indian officials are confident of finding a way out because they say Iran too needs the Indian market.